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B03: Consumer protection and competition policy

Consumer protection and competition policy are classical instruments of product market regulation. In this project, we investigate the performance and design of regulatory policies aimed at improving consumer welfare and market efficiency. First, we study delegated-agency problems in the context of competition policy and consumer protec
tion. Second, we study merger control, focusing on innovation activity, multi-product firms, and common ownership. Third, we study consumer protection, focusing on con tract design regulation, disclosure requirements, and the effects of bounded rationality on the part of consumers.

 

Project members

 

Discussion papers (B03)

 

Motivation

Consumer protection and competition policy aim at safeguarding the interests of consumers (and society at large) in product markets. In 2016, global merger activity reached a deal value of US$ 3.2 trillion. Many of these mergers take place in concentrated markets, involving firms with market power. In light of the fact that the profit share in many economies continues to increase, there is a common perception that competition is not working well in many markets. Many important consumption decisions such as financial investments, tariff choices, online purchases require expertise and an awareness of numerous contingencies. Consumer protection aims at improving consumer choices by facilitating information acquisition and by regulating firm practices that are deemed exploitative.  

Policy relevance

In many recent merger cases, the main concern has been on the effect of the merger on firms’ medium- to long-run incentives to invest , which are poorly understood. Among policy-makers, there is an ongoing debate about the proper scope of the merger control regime with respect to minority shareholdings. Competition authorities need rich and yet tractable models for merger analysis. Consumer protection measures such as disclosure duties for financial services, food labelling requirements, harmonization of product information, or the regulation of hidden add-on services have recently gained prominence on the policy agenda. Evaluating such measures requires approaches where information can be explicitly designed as well as models that can account for consumer bounded rationality.  

Project plan

Work package 1 - Delegated agency  

  • We investigate situations in which an agent makes project proposals, and a principal pre-commits to criteria according to which a proposal is approved.  
  • We employ the conceptual framework of delegated agency problems which are a class of mechanism design problems without money.  
  • One focus is on dynamic problems of delegated agency in which the arrival of feasible projects is unobservable to the principal.  
  • Another focus is on delegated agency problems with moral hazard. We will shed light on the relationship between objective and subjective performance evaluation in such problems.  
  • A third focus is on applications to merger control and consumer protection.  

Work package 2 - Competition policy  

  • We study competition policy, with a particular emphasis on merger control.  
  • One focus is on the effects of mergers and merger policy on investment and innovation.  
  • Another focus in on analyzing mergers and merger policy in models with differentiated goods and multi-product firms.  
  • A third focus is on the potential collusive effects of mergers and the effects of common ownership.  

Work package 3 - Consumer protection  

  • We study consumer protection with an emphasis on the interaction with firms’ contractual choices and with a view on consumer bounded rationality  
  • One focus is on the regulation of information disclosure duties which we conceptualize as questions of information design. In information design, instead of choosing a mechanism, the designer chooses the information environment in which agents interact.  
  • Another focus is on the regulation of product markets when firms can exploit boundedly rational consumers. We plan to study this in the context of models of search markets.  
  • We also plan to contribute to a better understanding of how competition and consumer protection policies interact.  

 

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